For Too Many, the Job Market Isn't Working

Betsey Stevenson is a Bloomberg View columnist. She is an associate professor of public policy and economics at the University of Michigan. She was on the President’s Council of Economic Advisers and was chief economist at the U.S. Department of Labor.
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For all the encouraging headlines that the strong June jobs report has generated, it also illustrates a major challenge for the U.S. economy: Too many people are still not working or not even trying to find work.

The malaise can be remedied, if we can find the political will.

Despite the robust job growth of the past six years, people still aren’t participating in the labor force the way they used to. As of June, just 62.7 percent of the population had a job or was actively seeking one -- up a bit from the previous month, but still almost 5 percentage points below the 2000 peak.

One explanation is demographic: As the population ages, a larger percentage will naturally be retired. This explains about half of the decline in participation, and will keeping putting downward pressure on participation -- particularly as the baby-boom generation crosses the retirement threshold. The Congressional Budget Office expects the labor-force participation rate to decline another 2 percentage points by 2026.

Still, even if we look at people in the prime working years of 25 to 54, participation is depressed. At the beginning of 2000, 84 percent of prime-age adults were in the labor force. Today, only 81 percent are.

So why are so many people not participating? Do they just have better things to do? Or is something keeping them out? The answer is crucial to figuring out how worried policy makers should be, and what they can do.

A recent report from the president’s Council of Economic Advisers offers some useful insight. It finds that the decline in men’s participation is driven primarily by people with less than a bachelor’s degree -- people who have seen very little wage growth for decades, an indication of the weak demand for their services. Such poor opportunities mean that when workers leave or lose a job, they struggle to reenter the labor force. It’s even worse if they’ve been out of work for a long time. Many never return, particularly in the wake of recessions.

Unfortunately, some public policies have made things worse. Thanks to background checks, for example, the burgeoning ranks of men with criminal records -- some for transgressions as minor as marijuana possession -- are effectively locked out of the labor market.

Occupational licensing has also created barriers, requiring people to invest in a time-consuming and expensive process before entering fields ranging from haircuts and interior design to law and medicine. Too many licenses have evolved as a way to protect incumbent workers at the expense of new entrants. Since licensing laws vary by state, they also make it harder for workers to move to where the jobs are.

It’s crucial that the U.S. create more opportunities for employment and promotion, particularly for lower- and middle-skilled workers. To that end, we must commit to investing more in people’s skills, making it easier for workers to adapt to changes in the economy. We must reform the criminal justice system, so it doesn’t exclude so many people from the legal economy.

Employers, for their part, can help by assessing applicants more carefully -- even when they have employment gaps on their resume -- instead of discarding anyone with a blemish on their record. They must also do more to help their workers identify pathways for promotion and raises.

If the federal government took over licensing, it could sharply reduce the number of licensed occupations and allow licensed workers to move freely among states. If a license is truly necessary to protect health and safety, then everyone in the country should have access to the same protections.

Almost one in five prime-age adults is sitting on the sidelines of the labor market today. We need to do more to bring them back. We owe it to those who want to work, and to ourselves: It would make us all richer, not only in terms of gross domestic product, but also as members of a more inclusive society.

(Corrects definition of labor-force participation in third paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Betsey Stevenson is a Bloomberg View columnist. She is an associate professor of public policy and economics at the University of Michigan. She was on the President’s Council of Economic Advisers and was chief economist at the U.S. Department of Labor.
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